Paramount Group Inc (PGRE) 2014 Q4 法說會逐字稿

Greetings and welcome to the Paramount Group's fourth-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your speaker, Jacques Cornet of ICR. Thank you. You may now begin.

Thank you, operator, and good morning. By now, everyone should have access to our fourth-quarter 2014 earnings release and supplemental information. Both can be found on the Paramount website at www.paramount-group.com in the investor relations section. Before we begin our formal remarks, we need to remind everyone that our discussion today will include forward-looking statements.

These forward-looking statements, which are usually identified by the use of words such as will, expect, should, or other similar phrases, are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore you should exercise caution in interpreting and relying on them.

We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We also encourage investors to review our Form 10-K for the year ended December 31, 2014 when it is filed with the SEC.

During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our supplemental package.

Hosting the call today we have Albert Behler, Chairman, Chief Executive Officer, and President of the Company; Vito Messina, Senior Vice President, Asset Management; Ted Koltis, Executive Vice President, Leasing; Dave Spence, Executive Vice President, Chief Financial Officer, and Treasurer; and Wilbur Paes, Senior Vice President and Chief Accounting Officer. Management will provide some opening remarks and then will open the call to questions. With that, I'll turn the call over to Albert Behler.

Thank you, and good morning. Welcome to our first call as a public Company. Before we get started, I would like to take this opportunity to thank our partners, our tenants, our employees, and our new investors for making possible the launch of Paramount Group as a public Company. On the call this morning, I will provide an overview of the Company, Vito Messina will provide highlights on our [leasing], Ted Koltis will provide insight on the leasing environment, and Dave Spence will discuss our financial results.

Our portfolio consists of 12 Class A office properties, with 10.4 million square feet, located in markets that we view as having high barriers areas to entry, resilient employment rates, and historically strong rent growth. Within our portfolio, there is embedded rent growth potential that we will realize over the next few years, resulting in substantial NOI growth for the Company. Our opportunities are mainly at 1633 Broadway, Sixth Avenue, 2099 Pennsylvania Avenue, and One Market Plaza. Vito and Ted will go into the details.

Given that we completed our IPO on November 24, 2014, our reported earnings for the fourth quarter and the full year reflect only the 38-day stop period for which we were public. We are proud of our initial results, as we generated core funds from operations of $0.08 per share. While our financial results reflect only the stop period, for ease of comparison, we will discuss our leasing activity for the full quarter.

Our IPO in 2014 was a great milestone for us. Our success is based on the 20-plus years leading up to the IPO. We have in place a team and infrastructure that have demonstrated their ability to create consistent and sustainable results on a long-term basis. Specifically, we have been deliberate and measured in our approach. We have consistently focused on supply-constrained submarkets located in gateway cities. We have built a track record of success by managing our portfolio with a long-term outlook. We will continue to execute this focus strategy.

Turning to our fourth-quarter activity and some thoughts on each of our markets. In New York, during the quarter, we executed leases on 361,000 square feet of space. At 1633 Broadway, we extended the lease term for a global financial services provider on 102,000 square feet for nine months at in-place rents, on a lease originally set to expire in the first quarter of 2015. Second, also at 1633 Broadway, a financial services technology provider exercised its option on approximately 50% of its space for 46 months at 95% of fair market value.

We also executed a new 126,000 square-foot lease with a high-quality tenant at 1301 Sixth Avenue. We are excited that this new tenant is relocated its world headquarters to this building. This was a very good transaction and one that requires additional perspective to fully appreciate. Vito will address this shortly.

In terms of current environment across all of our assets and submarkets, we continue to see solid levels of activity. Specifically, in the Sixth Avenue and West Side submarkets, we are seeing strong activity from service providers and some larger TAMI tenants that are not able to find space of scale in other areas. Ted will elaborate on this trend.

In Washington DC, the end of the year brought significant activity in the trophy sector along Pennsylvania Avenue. During the quarter, we executed leases on approximately 133,000 square feet of space. This included a new 60,000 square-foot lease with a global law firm at 2099 Pennsylvania Avenue. We continue to still see solid interest as vacancy in this trophy sector is lower compared to most other parts of the CBD in Washington.

In San Francisco, the market continues to make progress at historically strong levels with two positive forces at play: the combination of, one, tenant expansion, and two, a lack of large blocks of space. These factors continue to drive leasing and rents.

Our strategy remains focused on long-term cash NOI growth for the portfolio. While there can be fluctuations, quarter by quarter, in our leasing activity due to timing, our team has leased an average approximately 1 million square feet per year for the last four years.

We also remain excited about our repositioning initiatives which are currently underway. At 1633 Broadway, we are redeveloping the public plaza, including 40,000 square feet of retail space on the lower concourse. We are having discussions with prospective tenants that seek a high-profile destination located in the heart of the Theater District with 24/7 pedestrian traffic.

The renovation will feature a glass entry cube, which offers visibility and dramatic lighting and signage to potential tenants. We estimate the total project cost will be approximately $15 million and the project will be substantially complete by mid-2016.

In San Francisco, One Market Plaza is undergoing a $25 million lobby and retail repositioning project. We have invested approximately $11 million through December 31, 2014. The project entails a comprehensive lobby renovation, new Spear, Steuart, and Mission Street entrances, new public seating, and transformative retail upgrades featuring 20 new and reconfigured store fronts and shops.

We expect the project to be substantially complete in the fall of 2015. Both initiatives will enhance their respective buildings and are great examples of how we plan to continue to improve the value of our assets over the long-term.

Looking at potential acquisitions, we are active market participants and have acquired 28 assets with a total value of $11.5 billion in the last 20 years, and as such, we review many opportunities each year. Currently asset prices are at an all-time high in our markets, but demand and rents are following.

We continue to be opportunistic although the current market conditions require us to be patient and disciplined. We will keep our strategy focused on both market and off-market transactions. The one constant is that we will remain very selective in how we allocate capital.

From a balance sheet perspective, we will maintain our conservative stance and stay well-capitalized to support any plan or opportunistic growth initiatives. As we look ahead, we see the potential to lower costs by refinancing debt maturities in a manner which should further enhance the strength of our balance sheet.

With respect to earnings guidance for 2015, our Board continues to work to formulate a policy that is in line with our operating the philosophies. We expect to be in a position to announce a policy regarding guidance, when we report our second-quarter 2015 results.

Our objectives have been constant and unwavering for many years and they remain unchanged today as we operate as a public Company. To summarize, we will focus on leasing available space, realizing the embedded growth in our portfolio. We will unlock value in existing below-market leases, and increase portfolio occupancy.

We will enhance value by repositioning assets as needed, including retail opportunities, and we will allocate and manage capital in a diligent proactive, and prudent manner, always with an eye for creating value for our shareholders. With that overview, I will now turn the call over to Vito.

Thank you, Albert. As Albert mentioned, for purposes of this discussion, as well as in our earnings release and supplemental package, both of which are available on our website, we will provide portfolio leasing metrics for the entire fourth quarter. Thus, the leasing data provided represents the 38 days during the quarter for which we were a public Company and 54 days we operated our predecessor entities prior to the IPO.

We are pleased that we had a very strong quarter of leasing activity. In the quarter, we executed 23 leases, aggregating approximately 537,000 square feet, at a weighted average initial rent of $72.24 per square foot, with an average lease of 9.6 years. Our share of tenant improvements and leasing commissions were $8.92 per square foot per annum, or 12.3% of initial rent.

This leasing activity represents approximately 45% of the entire year's leasing activity, and over 5% of our entire portfolio. Furthermore, this activity increased our portfolio-wide occupancy 180 basis points to 93.9% at December 31, 2014, from 92.1% at September 30, 2014. Of the 23 leases executed, 14 represented second-generation leases.

Of these leases, of which our share was 350,000 square feet, we achieved a positive mark-to-market of 19.4% on a GAAP basis and were flat on a cash basis. As Albert pointed out earlier, and as we discussed on the IPO roadshow, quarter-to-quarter matrix can vary quite a bit due to timing and uneven leasing activity.

While our cash mark-to-market was flat during the quarter, it was skewed by two leases in New York, which I will discuss shortly in more detail. Excluding these two leases, our GAAP basis and cash basis mark-to-market for the quarter were positive 27.6%, and 7.7% respectively.

To provide perspective, for the full year, leasing activity approximated 1.2 million square feet, of which our share was 625,000 square feet, representing second-generation leasing. Our GAAP basis and cash basis mark-to-market or positive 23.9%, and 7.5% respectively. Excluding these two leases, which we will get to in our moment, our GAAP and cash basis mark-to-market for the entire year were positive 29% and 13.8% respectively.

Now a little more detail on our markets for the fourth quarter. In New York, during the fourth quarter, we executed 14 leases, aggregating 361,000 square feet. Of those leases, nine represented second-generation leases. Of these nine leases, of which our share was 283,000 square feet, we achieved a mark-to-market of a positive 16.9% on a GAAP basis, and a negative 5.2% on a cash basis. Tenant improvements and leasing commissions were $6.84 per square foot per annum, or 10% of initial rent.

Our cash mark-to-market was negative 5.2%, primarily to these two leases. The first was a 126,000 square-foot lease with a major accounting firm at 1301 Sixth Avenue, which Albert mentioned earlier. The lease is comprised of approximately 63,000 square feet on the seventh floor, which had been vacant for more than 12 months and thus classified as first-generation space, and approximately 63,000 square feet on the 10th floor, which represented the second-generation space.

The existing tenant that leases the space through May 2016 also leases the 11th floor, the 35th and 36th floors, and the 41st through 45th floors under a lease whose rental rate took into account all of the lease space. Accordingly, the prior fully escalated rent used to calculate the mark-to-market for the 10th floor represents a single rental rate for all nine floors, seven of which are the highest and most expensive floors in the building, thereby creating the negative mark-to-market.

The second was a nine-month extension on 102,000 square feet with a financial services tenant at 1633 Broadway at current in-place rents. Excluding these two leases, the GAAP basis and cash basis mark-to-market for our New York portfolio was positive 26.8% and flat respectively. As of December 31, 2014, occupancy in the New York portfolio was up 90 basis points to 94.4% from 93.5% at September 30, 2014.

Turning to Washington DC, during the fourth quarter, we executed six leases, aggregating 133,000 square feet. Of this total, two leases aggregating 46,000 square feet represented second-generation leases, for which we achieved a positive mark-to-market of 23.6% on a GAAP basis and 25.3% on a cash basis.

Tenant improvements and leasing commissions were $12.66 per square foot per annum, or 16.4% of initial rent. Our DC leasing activity for the quarter was driven primarily by a 60,000 square-foot first-generation lease with a law firm at 2099 Pennsylvania Avenue, which increased occupancy at the building to 62% as of December 31, 2014, from 31.6% as of September 30, 2014. As of December 31, occupancy in our Washington DC portfolio was up 830 basis points to 88.8% from 80.5% at September 2014.

In San Francisco, during the quarter, we executed three leases aggregating 43,000 square feet. Those leases, of which our share was approximately 21,000 square feet, all represented second-generation leases, for which we achieved a positive mark-to-market of 38.5% on a GAAP basis and 20.1% on a cash basis.

Tenant improvements and leasing commissions were $10.32 per square foot per annum, or 10.4% of initial rent. At December 31, 2014, occupancy at One Market Plaza was down slightly 40 basis points to 96.8% from 97.2% at September 30, 2014.

In summary, we're very pleased with our results. We had a strong quarter of leasing activity, including strong mark-to-markets of a positive 27.6% on a GAAP basis and 7.7% on a cash basis, adjusted for the two New York leases previously discussed. And with that, I'll turn it over to Ted who will discuss what we're seeing in each of our markets.

Thank you, Vito. Overall, our leasing activity today continues to be strong across the three markets, following the momentum in leasing that Albert and Vito discussed from the end of last year. In midtown Manhattan, we have seen consistent activity across all our assets, but there are two areas in particular where we are seeing outsized activity.

The first is a high-end Plaza District space along Fifth Avenue. Rents in our assets here have surpassed pre-recession levels, due to a low inventory of space, and any potential available space is drawing significant attention.

Second is the Sixth Avenue and West Side submarkets, where availability is also among the lowest in Midtown and were activity is shifting to a broader base of tenant outside of the traditional finance and law firms. These include service providers and TAMI tenant that cannot find space of scale and efficiency in other Manhattan CBDs. We are very focused on this trend and plan to take advantage of it by mining the market for these types of tenants.

Specifically, we are promoting the advantages and efficiencies of our properties through direct marketing efforts in light of our existing availability and upcoming expirations at 1633 Broadway and 1301 Sixth Avenue. The increased office activity in the submarket is also driving better leasing for retail space. We are focused on taking advantage of the opportunities we have in our street retail, as well, during this period and we are seeing strong activity.

Turning to Washington DC. We are pleased with our end-of-year success, and are encouraged by where our assets sit with regard to what is going on today in the general leasing market. The combination of a flight to quality over the past few years and the downsizing trend in office standards, especially in legal services tenants, has led to a significant shrinking of available trophy space since most of the legal tenants have been forced to move in order to build out to new standards.

With the winding down of the downsizing trend approaching, and the lack of new or trophy product availability, we expect our assets located along Pennsylvania Avenue to be the beneficiary of this positive news. We witnessed those benefits in our level of activity in the latter half of last year going into this year.

On the government side, there was increasing GSA employment at the end of 2014 after three years of contraction. Therefore we expect 425 I Street and Liberty Place to continue to attract government leasing and benefit from this reversal.

Finally, in San Francisco, the robust leasing market, combined with the development of new space, continues to improve our asset stature at One Market Plaza as one of the best located buildings in the CBD. The majority of new development is taking place among Mission Street and South of Market.

The fact that most of the new development has been pre-leased puts One Market's location along Mission Street at the beginning of this modern and well-leased part of the CBD. Furthermore, we offer direct water views on all floors, which the current new developments cannot. This competitive advantage allows One Market to enjoy consistent and significant activity from all types of tenants and to command rents on par with and even greater than those in new construction.

With little office [roll] this year, we are looking to 2016 a beyond for opportunities to enhance office leasing at One Market. The retail size is an important focus for us this year, as we complete our renovation and further enhance the building's prominence with street retail tenants. With that, I will turn the call over to Dave Spence, who will discuss the financials in more detail.

Thank you, Ted. On November 24, we completed our initial public offering by issuing approximately 150.7 million shares of our common stock. This included approximately 19.7 million shares of underwriters' overallotment. We received gross proceeds of approximately $2.6 billion, which we used to repay debt, to acquire certain property interests, and for general Corporate purposes.

Given that the Company completed its IPO during the fourth quarter, our reported results reflect only the 38 days during which we operated as a public Company. Core FFO attributable to Paramount for this period was $16.1 million or $0.08 are diluted share.

Turning to our balance sheet, as of December 31, 2014, we had outstanding consolidated debt of $2.9 billion, of which our pro rata share was $2.4 billion. Overall, our pro rata debt had a weighted average interest rate of 5.4% and a weighted average term to maturity of 3.3 years. Of the outstanding pro-rata debt, approximately 90% is fixed rate with a weighted average interest rate of 5.8%. Our pro-rata net debt-to-total Enterprise value is a very conservative 28.6%. Our net debt-to-our 2014 annualized adjusted EBITDA is 5.8 times.

Regarding our financial flexibility, at the end of the fiscal year, we had approximately $1.238 billion of capacity. This was comprised of $438 million of cash and $800 million of availability under our $1 billion senior unsecured resolving senior credit facility, $200 million of which has previously been reserved for letters of credit. This provides sufficient capacity to achieve our operational and strategic goals as we begin 2015.

Going forward, we have approximately $926 million of debt, with an interest rate of 5.26% maturing in late 2016. We are actively evaluating our options and are focused on finding the right approach to further strengthen our balance sheet. As we progress down this path, we will provide updates as appropriate.

Turning to our dividend policy, we recently announced that our Board of Directors declared our first dividend of $0.039 per common share for the 38-day period in the fourth quarter during which we were public. This is for shareholders of record as of the close of business on March 11, 2015. This fourth-quarter dividend will be payable on March 27, 2015.

We also announced that our Board of Directors declared a regular quarterly cash dividend of $0.095 per common share for the first quarter ending March 31, 2015. This dividend is payable on March 30, 2015 to shareholders of record as of the close of business on March 12, 2015. With that, I will turn the call back to Albert for closing remarks.

Thank you, Dave. Hopefully you can see we have a solid Organization with a clear strategic focus. We have a long-term cycle tested track record of success operating in our markets and creating value for our owners. And now, as a public Company, we are extremely excited about what we have already accomplished and plan to continue our success and growth.

Thank you again for joining us this morning. We appreciate your interest in Paramount. We would be happy to answer any questions that you might have. Operator, if you would please open the lines for questions.

(Operator Instructions)

Jamie Feldman, Bank of America.

I'm hoping you can focus a little bit more on your comments on Sixth Avenue and West Side demand, service providers and TAMI tenants coming out of the woodwork, needing more space. Can you just give us more color on maybe the amount of tenants looking for space and the size of some of those leases? Just more color would be very helpful here?

I'll pass this question on to Ted Koltis who is spearheading our leasing effort there. Ted?

Thank you. So as I said in my comments, we do have healthy activity with lots of tenant views and we have negotiations ongoing with a handful of tenants. I would say that our activity level of tours are very healthy in both 1633 Broadway and 1301, with several tours a week. And we are in negotiations with a multitude of tenants, ranging from technology, media, finance, law, and consulting.

Okay. Are you comfortable giving any ballpark in terms of square footage under negotiation?

That's all I will say about that.

Okay. Then can you talk a little bit about what we're seeing on CapEx and TIs and concessions, especially in the same corridor, Sixth Avenue and the West Side?

Following on from what Vito described, in the fourth quarter, as the deal that we did at 1301 Avenue of the Americas, we feel that those concessions were in line with what's going on in the market, and that's what we're continuing to see.

Okay. All right. Thank you.

Vance Edelson, Morgan Stanley.

Thanks and congrats on getting your first quarter under your belt. We appreciate the operating metric disclosure on a full-quarter basis, and since we also tend to conduct our financial analyses on a quarterly basis, can you also give us a feel for what FFO would've been pro-forma for the full quarter, as opposed to the last 38 days?

Hi, Vance. I will pass this question on to Wilbur.

Hi, Vance. We will not be providing any pro-forma disclosure regarding the full quarter. We will just be providing the statistics for the REIT going forward. Any pro-forma disclosure would have been in our S-11.

Okay. Fair enough. Then related to that, with some pretty strong occupancy gains just during the quarter, can you comment on the cadence of leasing during 4Q and whether it was back-end loaded at all? Just tried to get a feel for how representative the $0.08 is for the full quarter, if you can just comment on the pattern of leasing during the quarter?

The pattern of leasing was pretty much back-ended, which is pretty normal for a year-by-year situation. Leases get done by the end of the year, very often in December. We have performed very much in line with what we had stated during the time of the IPO. Actually, we have over-delivered and there was a lot of leasing done by the end, by the last 30 days, within the last 30 days of the quarter.

Okay, fair enough. Then just for my follow-up, a nice move-in occupancy at 2099 Pennsylvania. Do you feel like you still have momentum there? In other words, did the leasing activity continue into the first quarter? And for DC in general, can you comment on the type of tenants you're attracting at both the Pennsylvania Avenue buildings and at Liberty Place? Is it primarily lobbyists and lawyers or is there any tech or other type of activity there?

There's a lot of activity still with lawyers and lobbyists. As mentioned in our prepared remarks, the Pennsylvania Avenue, and that was one of the reasons why we bought these assets in the downturn, because we know that this market is -- part of the market, which is the most prestigious address in Washington, is coming back the first, so most of the tenants are in that segment.

Okay, great. Thanks a lot.

Brendan Maiorana, Wells Fargo.

First question, probably for Dave or Wilbur. If I look at what you guys did in the stub period, just from an NOI perspective, and we extrapolate that and annualized it, is that a fair representation, if we do that? Or was there something anomalous that happened during this stub period, which would make it unfair or not representative of what the outlook of the NOI run rate ought to be?

Hi Brendan, this is Wilbur. I don't think there was anything in our results that would be unfair for you to extrapolate from, so you could continue to do that. There's nothing in there that's one time. Everything was core in our metrics.

So it seemed like if I did it correctly, I got annualized NOI was about $302 million, cash NOI after abatement, straight-line rent, all that stuff, which was in line with your average annual -- with your outlook for all of 2015. You guys were low $300 millions, $300 million to maybe $303 million or somewhere around there, if my memory serves correctly. I know you don't want to give guidance, but just directionally, are you guys -- it's been four months since the road show, do you feel better about the NOI outlook that you were expecting in 2015 versus three or four months ago? Is it about the same? Do you feel maybe any reasons for more caution?

Again, we want to the high road on this, and as we reiterate in our prepared remarks, we are not providing any guidance at this time.

Okay. And then--?

Our only add, Brendan, would be to consider -- this is Dave -- is to consider again, it is a fairly short period, and while nothing unusual happened, we would be cautious about over-extrapolating such a short period. There is, as we discussed -- we take a long-term view of our business and why we're not providing guidance -- this is a longer-term transaction that we're going on and so we're a little cautious. There will be variability quarter-to-quarter in when things will occur, so use caution obviously.

Yes. Understood. Again, probably for Dave or Wilbur, your leased rate is 93.9%, so you had the nice move-up in the quarter, my recollection is that the occupancy -- commenced occupancy, for the nine months ended September 30 was a little bit below 90%, it was 89.8%, if I remember correctly. Can you give us a sense of what that occupancy number was versus the leased rate in the fourth quarter or the stub period or whatever?

That question will be answered by Vito Messina, Brendan.

Hey, Brendan. Thank you very much. If you look at the -- on an approximate basis of the square footage of tenants that are leased but not yet commenced, because of all of the activity that we had in the fourth quarter, we did again 537,000 square feet in the fourth quarter, I would say, you're right in that ballpark 450,000 to 500,000 square feet of leases that have been executed but not yet commenced.

Okay. Okay, thanks guys. I'll get back in the queue.

Vincent Chao, Deutsche Bank.

Just wanted to continue that line of thinking here. The 450,000 to 500,000 of signed but not commenced leases, can you give a sense of how that will flow into the numbers in terms of commencements? Is that back-end weighted towards 2015 or is that more 2016 commencements?

It's not going to be into 2016. For the most part, it is all going to be into 2015.

Okay. Great. And then just maybe return to the TAMI tenant conversation. You noted some spill-over demand, folks not being able to find block space that's sufficient, but those types of tenants also have skewed towards certain amenities that may or may not be in place in some existing buildings. Just curious if there's anything specifically that you're doing to try to attract those tenants from an amenities perspective or any other building change perspective?

We have been quite successful, surprisingly enough. Most of our buildings has some very corporate looks, but we have been very successful in San Francisco. As you might recall, Google took a big chunk of space there. We have other TAMI tenants, Alterdesk. We have TAMI tenants at 1633, and we realize that there is a shift in what they really like, and what they demand with regard to building services, but Ted will add to this as well.

The other comment that I will have, that is specific to our buildings, specifically the ones that we have availability in, 1301 Sixth and 1633 Broadway, is that both of these buildings [were] very well built in terms of infrastructure and also in terms of the ability to house many people efficiently on those floors, so that gives us a distinct advantage in those two properties that tenants can't readily find in Midtown.

Okay, thanks.

Ross Nussbaum, UBS.

I know you're not giving guidance at this time, but I'm curious if you had any sense of a ballpark number for what you think your TIs and LCs will be for 2015, both first and second generation, as we think about the capital that's going to be going out the door this year.

Hey, Ross, it's Vito. Ross, if we look at what we did in the fourth quarter, at the weighted average of the $85.44, or a little under $9 per square foot per year, that's going to be pretty representative of what we will encounter in 2015.

Okay. That's helpful. The second question I have is, we all appreciate that the demand for space in Manhattan is quite healthy right now, can you give us any more color in terms of the upcoming expirations at 1633 Broadway? In total, between 2015 and 2016, there was, what, about 850,000 square feet between Morgan Stanley, BofA, Deloitte, BNY. Can you give us any sense of where those conversations are and may be how aggressive the Rail Yards and lower Manhattan is being in trying to pull those guys away from you?

From what we're seeing, we are very competitive with the Rail Yards and with lower Manhattan, certainly at 1633 Broadway, and even at 1301 Avenue of the Americas, if you look at where pricing is in the Rail Yards and the change to go downtown and those unquantifiable costs to a tenant.

Is there anything specific you can say about the Morgan Stanley situation at this point as to what their plans are later this year?

No. We can't comment on that.

Thanks, guys.

Jed Reagan, Green Street Advisors.

Maybe if you could just talk a little bit more about market leasing activity among the big bank and law firm sectors, recently in New York? And then maybe just what inning you think we're in, in terms of the densification and downsizing trends for those sectors?

They are different trends. We have seen this over the last couple of cycles, that is always when there's a down cycle, you might recall Arthur Andersen was an audit company at one time, who was predicting the death of the office market in the 1970s and 1980s. So we see that there has been some downsizing.

But in certain cases, some of the potential tenants are looking for increasing space, and looking for different space, different configurations. We are very well-equipped with our buildings for that, because they are very uniquely -- they have a very unique design that is very functional and operationally efficient. Ted, do you want to add to that?

Again, as I said in my remarks earlier, when you look at Washington DC, and a lot of that downsizing that's gone on, a tenant has to -- effectively, a tenant really has to move to do that downsizing. Law firm tenants traditionally go to trophy Class A type buildings that we have. That is really a cause of a lack of space at this point, after three years of a lot of that movement, that's caused a lack of space along Pennsylvania Avenue. So we feel that we're very well-positioned there. Then, as Albert mentioned now, and as I mentioned earlier, in our availabilities in New York, in the efficiencies that tenants are looking for today, especially the TAMI-type tenants that are doing a lot of leasing, our buildings bode well in there, as well, because of their infrastructure and how the floors lay out and the efficiency of those floors.

Okay. Thanks. Just following up on Ross's question, you've got about seven leases, over 100,000 square feet, that are expiring the next couple of years. Are there any of those leases where you feel comfortable just giving a quick update on status, either in terms of backfilling prospects or renewal prospects with the in-place tenants?

Well we are consistently talking with our existing tenants and we are offering them all kinds of opportunities. Some of them really don't know their business model, like many market participants today. Some of them want to shrink a little bit or grow a little bit. We are working with them very proactively as part of our management system, and it's too early to predict of what the decision is on a one-on-one tenant basis.

Okay. Thanks. And then just last one, you've come in early out of the gates here. Looks like the stock might be trading at a little bit of a discount. Just wondering if share repurchases are something that is on the menu at all?

No. That would be a Board decision.

Okay. Thank you.

Brad Burke, Goldman Sachs.

Just a couple of modeling questions from me. The first one, I wanted to get an update on how we ought to be thinking about G&A? I realize it's difficult to extrapolate five weeks and make it a run rate, but if we look at your G&A, it was quite a bit under what you were running at in your S-11, so I'm wondering whether you had any real reduction versus what you were thinking or maybe there's some geographical differences in reclassifications on the income statement or whether we would expect that run rate to increase as we get into 2015?

Brad, I agree with you that it's hard to do, but I pass it on to Wilbur.

Hi, Brad. Again, we'd just like to reiterate, we're not providing any guidance. That said, we will manage our cost structure in a very prudent and efficient manner.

Okay. Then you had touched on this a little bit, but how you are thinking about deploying the proceeds from the Shoe. I'm interested if you could help us think about your level of appetite to prepay some of the higher interest rate maturities that you have coming up over 2016 or 2017, and maybe just in general, give us a sense of how much cash and liquidity want to maintain on the balance sheet?

Just a general response, and then I'll pass it on to Dave Spence. We always like to have sufficient firepower for potential acquisitions. At this point, we don't want to prepay early because we have high breakage costs on the long-term debt that's not the best use of our capital. We have been pruning our debt situation very carefully in the process of the IPO that we did. We think that having a little more cash on hand for potential acquisitions that we are following -- I know the market is very pricey, but that's a comfortable situation for us and for the shareholders, as well. If you want to add anything?

I really can't think to add much to the question Brad, but other than that the cost of breaking right now the fixed-rate debt are rather high and the rates that we're currently paying on our floating rate are very attractive, in the main, well below 2% as seen in the supplemental. So we feel very good about right now where that is. We're going to look aggressively at the strategy, as we mentioned, going forward, on how to do that. We've always maintained a conservative balance sheet, and intent to, but also to have capacity to be opportunistic when the opportunities arise, is very much in our DNA.

All right. I appreciate it. Thank you, guys.

Gabriel Hilmoe, Evercore.

Thanks. Maybe just a question for Ted, just on 1301, the CohnReznick lease is embedded in the 85% leased rate number, but what was the move-out there, that offset that? It looked like the absorption was about 64,000 square feet in Q4?

The question is better answered by Vito.

On that deal, again, they took the 7th floor and the 10th floor. The 10th floor was currently vacant, and then the -- I'm sorry the 7th floor was currently vacant, 10th floor is occupied by another tenant in the building whose lease expires in mid-2016 and then they'll take that 10th floor at that point.

Okay. Then just on 712 Fifth and the Henri Bendel lease, which goes to 2021, is there any opportunity to recapture that space earlier or have you been having any discussions with them?

We have been talking off and on with Henri Bendel, but we can't clearly predict what's happening there. Actually, the lease can go out to 2030, if they ultimately exercise all their options, so we can't really foresee what the ultimate outcome is at that position.

Okay. Thank you.

Brendan Maiorana, Wells Fargo.

Follow-up probably again for Dave or Wilbur. Annualized rent went from $576 million pro-rata at the time of the road show, at least according to the S-11, up to about $604 million, so that's about a 6% move up, but you had a 180 basis point move, in your leased rate. What drove the rents up much more dramatically than the leased rate, given that cash rent spreads were flat during the quarter?

The real reason, Brendan -- the simple answer is in the S-11 we disclosed annualized base rent per square foot, whereas in this supplemental, we are doing it on a fully escalated basis.

Okay, so not apples-to-apples.

That's correct.

Got you. Okay. And then last one -- I got to try, your leased rate -- what we're all trying to figure out is you guys are a lease-up story and a mark-to-market story, you've got a lot of expirations that are happening during the year, you've also got this 450,000 to 500,000 square feet of tenants that are signed but not yet commenced. Just from a lease perspective, net absorption perspective, given the expirations that are this year, do you think you'll end the year at a higher leased rate, so positive net absorption this year? Or do you expect that expirations would more than offset the new leasing that gets done?

Again, we're not going to give guidance on that. That having been said, we like the activity that we're seeing from a leasing perspective.

Okay. Fair enough. Thanks, guys.

Thank you. I'd now like to turn the call back over to Albert Behler for closing comments.

Thank you all for joining us today and we look forward to our next call. Thanks a lot. Bye-bye.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.